In Europe, the risk of flooding is projected to increase due to climate change. At the same time, the cost of insurance protection of those whose properties are at risk is set to become unaffordable as the UK Government’s Flood Insurance Statement of Principles runs out. As a result of this, a new way forward needs to be imagined and implemented. For this, Oxera Consulting is developing new insurance models to keep those at high risk covered in a changing world.

A study published by the Nature Climate Change journal highlights that extreme floods, which occur once every 50 years, are set to shorten to once every 30 year. The extreme damage now occurring once every 16 years is projected to come down to once every 10 years. For the European region, the cost of flooding could reach €23.5 billion a year by 2050, up from €4.9 billion, an increase of near 380%, according to the journal Nature Climate Change.

Flooding has in recent years made headlines around the UK, with the major winder floods in 2013/2014 affecting thousands, and killing 17. And while the UK government scrambles to create effective defences for the continued threat, private parties are also looking for ways to mitigate the damage to personal property for flood affected subjects.

To deal with this issue, Oxera Consulting is exploring ways through which to create a new flood insurance model in the UK, which includes a number of new criteria for future policies, as van Reinder van Dijk, a Partner at the firm explains. “Insurance cover for flooding should continue to be widely available for everyone, while, at the same time flood insurance premiums should reflect the real risk,” he says. According to him, it is up to local authorities to develop adequate defences for their communities.

Yet while local communities are looking to defend their boarders against the increasing risk of floods, the UK government’s Flood Insurance Statement of Principles, which requires insurers to insure high risk households at an affordable rate, established in 2000, has become unsustainable. In addition, changes to the market – with an existing commitment between government and industry due to expire soon – mean that a “free market” is about to be set up, with as a consequence unaffordable premiums.

One way in which to limit the insurance premium burden of high-risk households is to create an agreement between insurers and the Government about a fund that will allow insurers the possibility of passing on flood claims payment above a thresh-hold to the fund. A not-for-profit company - Flood Re is being set up for this purpose. Developing such a fund will provide between 300.000 - 500.000 households at high risk of flooding with affordable priced flood insurance through the Flood Refunding scheme.